First time homebuyer credit - ad nausem

[rfassett]

With all of the posts I have seen everywhere I am certain this has probably been addressed somewhere sometime. I apologize for bringing it up again. Thanks for any insight you can offer.

Facts: New client last year - husband and wife - qualified for the Long Time Homeowner credit. New home purchased in a town several miles away with the intention of moving then. No intention to sell old house - then or now. Very shortly after new home purchased, wife's mother becomes ill and eventually passes away two weeks ago. Move to new residence never happened because of mother's illness. Wife drops off 2010 tax info yesterday and says that the move to the new home is "on hold" because she "can not imagine" giving up her job in this economic environment knowing that getting a job in the new location is highly improbable. When I inquired what was being done with the new home, she said their adult single daughter is living in it and maintaining it. It is not a rental situation.

So how do I proceed? Is this a credit re-capture? If so, amend 2009? Or pick it up on 2010? Or is there some way around the re-capture that I am missing?

This client and I will have a meeting in the next day or so. My practice has been built on integrity and I have stated over and over to my client's that although I will do my best to minimize their tax liability I will not cross the line for or with them. The wife suggested yesterday that we just put the new home address on the return - as if that would make all of her problems go away. Not on my watch. We will do the right thing or they will go elsewhere.

Again, thanks for your comments.

[Margaret CPA in OH]

It seems to me obvious that one criteria, that the new house become the main home, was never met. How could the credit become valid? I just reviewed the requirements for a physician that moved from Maine to Missouri and another lady who did meet the requirements including sending the previous 5 years of the last 8 of tax bills or other documents proving old main home was old and new documents with address change proving new home was now main. From your writing, it seems that would not be possible Check the instructions for 5405. Pretty clear, I think.

[rfassett]

Thanks Margaret. I have reviewed the instructions and other sources and they all state that the home must become your primary residence. Let me state unequivicably that I am in total agreement with you at the moment. But playing the devil's advocate for a moment - none of my reading indicated a time frame in which the new home had to become the primary residence. The only time reference I found was the 36 month window AFTER occupation. (As an aside, I can still hear one of my tax instructors saying "if you have to ask how long, you probably already have the answer".) Anyway, I just wanted to make sure there was nothing out there that I am missing before I tell the client that the 2009 return will need amended and the credit paid back.

Thanks again.